Our Evaluation of the Information Quality Level on Software TCO from Google Search Results

Executive Summary

• We review some of the highest-ranking sources on software TCO to answer the question of the quality level of information on TCO.

Introduction

We review some of the most popular articles on software TCO to understand what is generally available to those searching on this topic. Our own site has several articles that rank high for a search on “software TCO,” however, we will leave our own articles out of this analysis.

See our references for this article and related articles at this link.

Article #1: Software Advice’s Total Cost of Ownership Calculator

This is an elementary calculator that allows one to compare SaaS versus on-premises.

Article #2: CIO’s Calculating Total Cost of Ownership

It is a perfunctory article that covers the categories of software.

This is the second article where there is so little content provided in the article that it’s difficult to spend much time commenting on it.

Article #3: RSquare CRE’s Software TCO: The Final Analysis

This is a banal article that describes TCO. It is 760 words long and appears as if the author put no effort into writing it. There is not much to say about it other than explaining a few things about TCO, like SaaS versus on-premises.

Article #4: GetApp’s How to Calculate Total Cost of Ownership for Software

I found this quotation interesting.

In a GetApp survey conducted last year, 48% of respondents said they spent two weeks researching software before making a purchase.

In the same survey, 31% of respondents said the main thing they would change about the software buying process is making it easier to compare products.

The first part of the quote is difficult to believe. If true, then an enormous number of software buyers are investing close to nothing into research. This is not specifically rated to TCO, but it was interesting.

The overall article was pleasantly written, but as with the other articles, the author did not give the impression that they understood the topic at much more than a surface level. This was the highest-rated article thus far.

Article #5: Digital Principles’ How to Calculate Total Cost of Ownership for Software

While of a reasonable length, there was nothing to this article. It just makes statements about the importance of TCO.

Article #6: Cost of Ownership Portal’s Understanding Total Cost of Ownership

This is an exceedingly short article that covers the same introductory information about TCO.

Article #7: Gartner Glossary on TCO

This is the entirety of this article.

Gartner defines total cost of ownership (TCO) a comprehensive assessment of information technology (IT) or other costs across enterprise boundaries over time. For IT, TCO includes hardware and software acquisition, management and support, communications, end-user expenses and the opportunity cost of downtime, training and other productivity losses.

That is it. Somehow Gartner ends up ranking as one of the first search results for these 47 words. Numerous articles on TCO refer back to this Gartner definition, but this definition is just not very good. It would be very easy to come up with a superior description.

Article #8: Microsoft Azure’s TCO Calculator

This is a very poorly constructed TCO calculator that Microsoft wants users to use. As with Azure’s user interface, its usability is such that you will want to find alternatives.

Article #9: Technology Advice’s Total Cost of Ownership CRM Marketing Automation

This article is similar to the ones reviewed up to this point but has more effort put into it. This quote was curious.

TCO is such an important analysis because it determines your ROI. Without TCO analysis, software can surprisingly cost a business upwards of 5-8x the original purchase price. This difference in expenses can significantly affect a business, its ROI, and overall success and/or livelihood.

This quote contains several things that are not true.

• TCO is input to ROI. It is the denominator in the ROI calculation.
• TCO analysis does not control the multiple of the overall cost and the purchase or acquisition price.

But after this paragraph, the article recovers and becomes better. It offers some good observations about what is considered in TCO. And because of that, we gave it a rating of a little below average.

Article #10: Acumentica’s ERP TCO Calculator Get True Total Cost of Ownership Calculation

This article is very similar to the article reviewed earlier by GetApp. It lays out the basics of TCO and why it is important.

Article #11: Appian’s Avoiding the Two Biggest Mistakes in Software TCO Analysis

This article begins starting the same issue that TCO estimation is important but then spends the rest of the time discussing the difficulty of performing the Excel calculation. There is just not much to the article.

Article #12: Healthgrades’ Calculating TCO Healthcare Software

This article continued a pattern I had noticed where the websites in this analysis often make it difficult to read the text they have printed. It is also nearly identical to the other articles in that it says nothing new and is quite low in content.

We are up to the 12th article, and I have yet to find any original thinking.

• Each article so far has been primarily introductory.
• Each article would have taken very little time to create and did not require the author to know much about the topic.

Article #13: Wikipedia’s Total Cost of Ownership

This is a concise article by Wikipedia standards. This quote was interesting.

TCO analysis was popularized by the Gartner Group in 1987. The roots of this concept date at least back to the first quarter of the twentieth century. Many different methodologies and software tools have been developed to analyze TCO in various operational contexts.

What is interesting about it is that Gartner emphasizes TCO calculation and drives their customers to the highest cost solutions. This is because Gartner receives the most money from vendors that have the highest TCO. So while they may have popularized TCO, they are driving customers to ignore TCO. No article that I found mentioned this easily observable point and something I cover in detail in the article Why Gartner and Forrester Do Not Want TCO Calculated.

Article #14: FT Maintenance’s CMMS Software Total Cost of Ownership

This article was so devoid of content, and we will rate it but skip describing what it said.

Article #15: Software Improvement Group’s Higher Build Quality for Lower Software TCO

This appears to be an incomplete article. It starts off using the analogy of automotive TCO and then tries to move the topic over to the TCO of software purchases.

However, at some point, the author appears to run out of steam. And then there’s no conclusion written at the end of the article. Therefore, it’s actually difficult to see this as a complete article. It’s unclear if they ran into a time limitation and decided to publish the article and then move on to other topics, or they just lost interest in completing the article.

As with all the other articles reviewed up to this point, it does not appear as if the author of this article has very much understanding of TCL calculation for software.

Article #16: TestIm Software’s Total Cost of Ownership that to Factor In

This is another virtually content-free article. We will score it, but there is nothing to discuss.

Article #17: SaaSAddict’s SaaS TCO Total Cost of Ownership Guide

This quote was curious.

The problem is that there are a lot of values to factor in with SaaS TCO, such as overhead, marketing, sales, CRM management costs, infrastructure costs, and of course, ensuring value for a customer. In business science, people often address concepts like this with absurd, impenetrable math, for calculating metrics based on other metrics, and bringing in arcane mathematics that require a super computer to even begin to understand.

However, I’m not here to meddle in that math nonsense, I’m here to explain TCO in simple terms, and talk about the factors that contribute to it. I’ll talk about how they link together and how to think about addressing these issues.

Why would one categorize TCO calculation as math nonsense?

Secondly, as a person who has analyzed many TCO calculators, I have never found impenetrable math. Rather, I have found a lack of description around the assumptions and a general lack of interest in performing calculations.

The article concludes with the following.

Your SaaS TCO is going to parallel in metrics and stimuli your customer experience and your customer relationship management concerns pretty closely, and just as with those, it goes beyond any one department pretty widely. But, once you see that all it is, is nothing more than a parallel set of costs to the company to acquire and retain the customer, following a basic map of customer experience, it’s not so terribly complex of a concept, really.

Why would the author not include a sample model in this article?

This is consistent with the other articles reviewed to this point that there is minimal effort deployed before writing the article.

Article #18: Functionalize’s ABCs of RIO and TCO for Software Teams

This is a highly disjointed article where the author does not understand the title’s topic and moves into other areas like opportunity cost. This is a prototypical article were a contract author is hired and given a topic, which they don’t themselves understand.

Article #19: ComputerWorld’s The True Cost of Software

This is the most interesting article that we reviewed up to this point. Let us dive into some of the quotes.

Advocates of Linux and open-source products sometimes argue that because their software is distributed freely, it’s self-evident that their software is more financially attractive than propriety software from companies such as Microsoft, IBM, SAP or Oracle.

Yet anyone who looks into the problem of measuring the TCO of software quickly recognizes how murky this field can be. “Free,” it turns out, doesn’t necessarily mean cheaper.

To assess the merits of these various claims, I recently reviewed a large sample of publicly available articles that purported to address the TCO of different software server platforms. The first fact to emerge was that most of the 84 documents I reviewed could not even be considered studies — they didn’t capture sufficient data on the full range of costs needed to evaluate TCO and often based their conclusions on the analysis of only a single firm.

To begin with, it appears that the price of software itself — whether it’s free or not — is so low relative to the TCO that it may have little impact on the outcome of IT investment decisions for many purchasers. In most cases, the price of software proved to be less than 10% of the total cost of ownership.

This at least attempts to perform some review of TCO studies.

First, the author is correct that the quality of TCO studies is of deficient quality. Remember that the vast majority of studies on TCO are either performed by software vendors or consulting firms — neither of which have any research background and both of which only perform the studies to rig them in favor of their software or the software for which they have resources they want to bill hours. The author found the same thing that I did: the TCO studies are normally “PCO” or partial cost of ownership analyses.

The second part of the quote is problematic because. Simultaneously, the software’s price, or what is referred to as the acquisition cost of the software, is normally less than 10% of the total cost of ownership. The problem with proposing that this does not provide a serious advantage to open source is that with off the shelf software. The rest of the costs are also significantly higher than for open source software, a few reasons include the fact that with a package vendor, the support contract is often between 15 and 20% of the software’s cost, and that’s on an annual basis. Also, resources are more expensive.

One of the reasons for this is that the largest consulting companies tend to be the most expensive, and they tend to focus on only packaged software.

So, therefore, the open-source option. Just on this basis sees before we even get into the fact that the code is available, it is easier to adjust it follows open standards, and it does not allow the vendor to take control of the account. All of those place very significant advantages to open source versus commercial package solutions.

And none of that is actually mentioned anywhere in the article.

The Financial Bias of ComputerWorld Against Open Source

Another problem is the source. ComputerWorld receives advertising from packaged software vendors. Therefore, they do not make money if open-source software is sold to companies. So establishment media tries not to cover open-source and undermine it. This places them into a conflict of interest, and it allows them to be used as a tool by commercial software vendors who would want to muddy the waters.

As to the cost advantages of open-source software. ComputerWorld is owned by IDG, which is owned by a Chinese company and thus reports up through the Chinese government. They have zero focus on informing readers and 100% focus on extracting the maximum from advertisers.

Let us review that not only does IT media work this way, but the IT analyst space also works this way. Gartner does not cover open-source software unless a commercial entity represents that open-source software. For instance, Cloudera, which works in Hadoop. They don’t rate a Hadoop because it’s open-source, and they cannot extract money from them. Instead, they rate the commercial entity that works or the vendor that works with the open-source solution. And that is the fundamental problem that open source has an issue with getting representation in its media or with its analysts.

Article #20: Galorath’s Software Maintenance Costs

This is not an article. It is a 659-word advertisement for Galorath software, with a tie into TCO.

Article #21: Opservices’ A Que E TCO Economic Calculator

This 521-word article must have taken close to no effort to write and shows the problem with vendors that hire inexpensive writers who do not know the subject area.

Article #22: Thycotic’s PAM Software Total Cost of Ownership TCO Checklist

This is the entirety of the article.

To compare the cost of PAM software, make sure you factor in all the variables. Consider what it costs to get up and running and to maintain and grow your solution over time.

The right decision can increase your competitive advantage and prepare you for the future. The impact of making the wrong decision will be felt for years.

The PAM TCO Checklist helps you ask critical questions and weigh all the cost factors, so you can compare options and budget before you buy your software.

And you then had to fill out your details to receive their white paper. How did this article rank so high in Google in this area with only 86 words? Impressive.

Article #23: EasyERP’s ERP TCO Elements

This quote was interesting.

Most ERP system vendors charge an annual maintenance fee, approx. 15 – 20% of the whole purchase price. This is a positive thing, as it ensures the continuous product support, bug fix services, system updates etc.

Really? That is peculiar. Is this true also in SAP and Oracle that receive between 85 and 92% margins on that support? As we cover in the article, PHow Do SAP and oracle’s Support Profit Margins Compare to Pablo Escobar?

This article is not starting great.

However, the article at least has a long list of things to consider for TCO.

Maintenance & support: typically costs around 20% – 25% of the total purchase price per year.
Bug fix patches: applies to all types of software.
User licenses: as the number of users grows, the company must purchase new licenses. When the number of users falls, there are no refunds – such is the market practice. These licenses are typically priced per month, though some may require an annual contract.
Training: new users and employees come and go, and they need training.
New functionality: if the business environment changes or new regulations come into effect. May include documentation and project management costs.
User & administrative support: the cost of help-desk and system admins, or even maybe a few developers who will be supporting the system.
Disaster recovery & availability: ranging from backups to regular testing sessions.

So the article redeems itself somewhat after its introduction.

The Logic for Stopping at This Point

There was really nothing new coming from any of these articles. And as we looked at more of the articles down the list in the search results. It didn’t seem as if there would be anything else coming down the pike if we continued to read more articles. So at this point, we decided that this would be where we would stop.

So now, let us get into the scores.

The Table of Our Scores

The following is a tabular form of the articles we just covered.

Conclusion

All of the articles reviewed above are quite repetitive.

• We were not able to find any original thinking among any of the articles.
• Almost all the articles were written in a way that the author was able to put out the minimal level of effort.
• It was not clear from the articles that the authors knew very much about TCO calculation before writing an article.
• The concept of TCO was presented as if it had no entities that would try to prevent the TCO from being estimated accurately. That is curious because the selling side in software is quite opposed to TCO being calculated and normally wants the purchasing decision to be based upon the initial purchase price. Procurement departments normally also focus on the initial purchase price.
• The articles present the idea that everyone wants TCO calculated and to be calculated accurately.
• The available calculators that I found that were part of the articles were of shallow quality. And they tended to be extremely generic, such as how does a SaaS application. Compare in its TCO to that application if it were all on-premises.

The average score of the 23 articles reviewed was just a little over 2. The highest scoring article was from Technology Advice at 4.5.

Overall, this highlights the low quality of information on software TCO.

What Was Expected?

I did not have great expectations of what I would find prior to performing this analysis. However, the results are far worse than I would have guessed.

It is difficult to say that any of these articles is worth the time to read. The only way it would be is if you were entirely new to TCO. However, several of the articles contained either false or misleading information about TCO. These companies have people who appear to be researching the topic of TCO for the first time before they wrote their articles. I also find it highly unlikely that any of the authors had ever performed a TCO calculation before writing the article.